A new AM Best report suggests that firming commercial insurance prices and impacts from the COVID-19 pandemic could present opportunities for the US captive insurance segment to increase its footprint in several lines of business.
US captive insurers are meant to have continued their run of strong financial results in 2019, with pre-tax operating income of $918 million.
The segment remained extremely profitable despite a 16% dip in income levels compared to 2018, and once again outperformed its commercial market counterparts.
AM Best notes how the captive composite’s most recent five-year period average combined ratio of 92.0% compares favourably with the 100.8% posted by the commercial casualty composite.
Between 2015 and 2019, captives added $3.8 billion to their year-end surplus and returned $4.4 billion in stockholder and policyholder dividends.
This represented $8.2 billion in insurance cost savings for captives by not purchasing coverage from third parties in the commercial market.
According to the report, captives also may contemplate opportunities to expand their writings to traditional lines of business where rates have climbed following resurgent catastrophe losses, as well as because of ongoing uncertainties related to COVID-19.
Potential coverage offerings captives may explore include employee benefits and medical stop loss, as companies look to captives to help improve the overall health and well-being of workers and to cut overall medical costs.
Additionally, rate increases for lines such as director and officers, errors and omissions and commercial automobile may also spur captive interest and help reduce claims costs.
AM Best’s overall assessment of the captive industry remains favorable due to the segment’s consistent, positive long-term underwriting results and flexibility to creatively, and efficiently, address standard market challenges.
These results and attributes exemplify strong commitment and support from stakeholders, as evidenced by comprehensive risk management and loss control efforts embedded into the captive culture.
